The arbitrage game of buying out foreign-traded Chinese companies to relist back home has taken several knocks, including Beijing's clampdown on cash flowing out of the country. Now institutional investors may join the battle, as one of China's richest men is finding in the attempted purchase of his Hong Kong-listed property unit.
The Dutch pension fund manager APG Asset Management told Bloomberg News Wednesday that it had "concerns" about plans by billionaire Wang Jianlin to take private the Hong Kong-listed unit, Dalian Wanda Commercial Properties. Wang is offering HK$52.80 a share in a $4.4 billion deal that would leave BlackRock, the world's largest asset manager, out of pocket -- it bought at an average of HK$58 a share. APG got in during Wanda Commercial's December 2014 IPO at HK$48 a share, and would make a small profit.
Together APG and BlackRock, Wanda's third-largest shareholder, own almost 12 percent of the Hong Kong company's traded shares, above the 10 percent threshold for blocking a deal. Of Wanda Commercial’s top 15 holders, Hang Seng Bank, Principal Financial Group and a unit of Mirae Asset Management also stand to lose money on Wang’s offer, according to data compiled by Bloomberg.
Wang's difficulties would add to a series of setbacks for Chinese companies seeking to go home. You can't blame them for trying: Valuations in China, even after last year's slump, are as much as three times higher as in the U.S. In Hong Kong, the Hang Seng Index trades at about 10 times current earnings, while the Shanghai Composite is on 15 times.
Qihoo 360, the Internet security firm at the heart of a $9.3 billion buyout led by Chairman Zhou Hongyi, said Tuesday the investor group has delayed the close of the deal to August.
Zhou and the investors had trouble getting financing for the deal, much of which was through mainland wealth-management funds, after China increased scrutiny of money leaving the country. The group is transferring funds in stages, but as of last week it still needed to shift more than $2 billion.
Another take-private deal by the management of Nasdaq-listed Autohome has fallen through, though this time it was an improved offer that came unstuck. The Australian telecom firm Telstra chose to sell a 47.7 percent stake in the car-listings site to Ping An Insurance for $1.6 billion, rather than engaging with since-ousted CEO James Qin's offer for the whole firm. Qin was offering $31.50. Ping An paid $29.55, and the stock has since fallen.
So far, big investors haven't put up much of a fight, even though more than half the U.S.-listed Chinese companies going private in the past year have done so below their IPO prices, according to Peter Halesworth, managing partner at Heng Ren Investments. Bloomberg data show that the average premium in bids made on U.S.-traded Chinese companies was 20 percent higher than the 20-day average, but that's hardly comforting for investors who bought in at the low end.
The hurdles to these deals continue to mount on the Chinese side, meanwhile. Regulators are now looking at reverse takeovers, where foreign-listed Chinese companies are backed into a local shell to avoid joining the queue of about 800 firms seeking IPO approval.
Yet the take-private surge continues, with the travel site Qunar Cayman Islands joining in last week. In the second quarter, buyouts in the U.S. of Chinese companies were running at the highest levels since the frenzy hit a peak one year ago, when China was still booming.
Wang told Chinese state-run CCTV on May 22 that he wanted to take over the Hong Kong affiliate because it was undervalued. Now that institutional investors are thinking the same way about his offer, and perhaps others of its kind, expect a tougher time for take-private deals.
This column does not necessarily reflect the opinion of Bloomberg LP and its owners.
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